ECB chief likely to end bond-buying programme: Survey

Many analysts expect European Central Bank president Mario Draghi to set an end-date for bond purchases after next week's gathering of the governing council, or at the July session.
Many analysts expect European Central Bank president Mario Draghi to set an end-date for bond purchases after next week's gathering of the governing council, or at the July session.PHOTO: REUTERS

Analysts confident European Central Bank will phase out stimulus measures this year

FRANKFURT • Mr Mario Draghi is ready to end the European Central Bank's (ECB) bond-buying programme even if he puts off the decision for one more policy meeting, economists say in a Bloomberg survey.

Almost a third of respondents predicted the ECB chief would set an end-date for purchases after next week's gathering of the governing council, and 46 per cent said he would do so at the July session.

Either way, analysts are confident buying will be phased out this year, especially after executive board member Peter Praet confirmed a Bloomberg News report by signalling policymakers will hold their first full talks on whether to pull the plug on the stimulus tool.

"It could well be the case we are going to have a formal announcement in June rather than in July, as I had expected before Praet's speech," said economist Annamaria Grimaldi at Intesa Sanpaolo.

"If they want to be on the extra-cautious side, they could wait until July 26. However, Praet is the last of a number of members who hinted that market expectations that the asset-purchase programme will be terminated this year are realistic."

A decision to terminate the bond-buying programme would mark the first step for Mr Draghi out of crisis-fighting mode. The June 14 meeting in Latvia - one of the occasional sessions held outside Frankfurt - comes four years to the month since the ECB became the first major central bank to cut interest rates below zero.

It followed up with cheap loans to lenders and asset purchases that will total €2.6 trillion (S$4 trillion) by September. Economists predicted it will add €38 billion of debt to quantitative easing in the last three months of this year, and reinvest the proceeds from maturing bonds for another two to three years.

The ECB is still years behind the Federal Reserve in removing emergency stimulus. The US central bank slowly started lifting borrowing costs in 2015 and is on course for at least two more interest rate increases this year.

The ECB is still years behind the Federal Reserve in removing emergency stimulus. The US central bank slowly started lifting borrowing costs in 2015 and is on course for at least two more interest rate increases this year.

While Mr Praet reiterated his confidence in the euro area's economic expansion and signs that inflation is gaining traction, policymakers will have to take into account a host of risks.

Economists cited the top two concerns as political uncertainty in Italy and a global trade conflict.

Italian bond markets were rocked last week as the nation seemed to be headed for new elections that could be seen as a referendum on its euro membership, and the government that was finally formed still has the potential to run into strife with the European Union over its heavy spending plans.

Meanwhile, US President Donald Trump's administration, already embroiled in trade tensions with China, imposed steel and aluminium tariffs on the EU, Canada and Mexico on May 31.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on June 09, 2018, with the headline 'ECB chief likely to end bond-buying programme: Survey'. Print Edition | Subscribe